On 5 November, the Supreme Court ruled that severance payment for an employee with a top executive contract is exempt from personal income tax, as is the case for ordinary employee contracts.

This ruling, which is related to a case for compensation for termination based on contractual withdrawal by the employer, is of great significance because it settles the old dispute over taxation on this type of compensation.

Despite the fact that the judgment refers to a case of termination based on contractual withdrawal, it is important to stress that, in our opinion, the conclusions arising from this case would also extend to severance payments foreseen in cases of dismissal.

The Tax Agency must change its current criteria, which will have significant tax repercussions on tax proceedings or contract terminations currently underway, and on those that are not yet time barred, in relation to which a request may be filed to recover the undue income paid.

We remain at your disposal to study your case and assist you in performing the necessary actions to ensure these refund procedures are a success.

Explore More Insight